JP Morgan upgrades India to 'overweight', includes 3 stocks in EM portfolio

JP Morgan has joined other prominent global brokerages such as Morgan Stanley, CLSA, and Nomura by upgrading India to an overweight rating

JP Morgan has joined other prominent global brokerages such as Morgan Stanley, CLSA, and Nomura by upgrading India to an overweight rating. This upgrade is attributed to several factors, including the positive seasonality associated with general elections, robust growth in emerging markets (EM) nominal GDP, and the development of a more extensive bond market, which is expected to decrease risk premiums.

JP Morgan said this upgrade is based on both cyclical factors, such as using near-term correlations and dips as opportunities, and structural factors, including India's strong nominal GDP growth driven by demographic trends and infrastructure investment needs, competitive risk-adjusted returns compared to developed markets, and a deeper domestic bond market.

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The brokerage believes that EM equities face challenges as US long rates rise and the dollar smile impacts growth and rates. A sustainable bid for EM equities may only emerge once the US completes its cycle with a GDP recession and rate cuts, it said.

The brokerage house has included Sun Pharmaceutical Industries Ltd, Bank of Baroda, and Hindustan Unilever in its EM Model portfolio.

Earlier, Morgan Stanley upgraded India to overweight due to improving economic and earnings growth, while CLSA increased its India portfolio allocation by 20 percent and Nomura upgraded India to overweight in September, citing a strong top-down narrative and potential benefits from the China+1 trend.

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JP Morgan also upgraded Saudi to overweight due to premium oil prices, uncertainty, a strong dollar, and equity market de-rating. It downgraded South Korea to neutral due to profit-taking, higher US rates, slowing demand, and less accommodative monetary policy. JP Morgan said it plans to allocate its risk budget to overweight China, in addition to Saudi and India, due to attractive growth momentum, low investor positioning, and favorable valuations.